On Sept. 21, 2023, the Federal Trade Commission (FTC) brought a lawsuit in the U.S. District Court for the Southern District of Texas against US Anesthesia Partners (USAP), a large healthcare provider platform, and private equity firm Welsh, Carson, Anderson and Stowe (WC), which has been a principal investor in USAP for many years.
The lawsuit alleges that USAP and WC engaged in monopolization, price fixing and methods of unfair competition in connection with a decadelong strategy to “roll up” anesthesia providers in Texas and engage in contracting practices that increased the cost of services. It has been publicly known for some time that the FTC has been investigating the antitrust implications of the roll-up activity of USAP, in line with public criticism by FTC Chair Lina Khan of the use of roll-up acquisitions whereby a single buyer gains significant market share through multiple transactions, none of which is large enough to trigger a filing under the Hart-Scott-Rodino Act (HSR Act).
Notably, this criticism, particularly in healthcare, has also been delivered by the U.S. Department of Justice Antitrust Division, state attorneys general and state legislatures that have passed laws requiring pre-close review of healthcare transactions not subject to the HSR Act.
The Sept. 21 Complaint against USAP and WC alleges a number of violations, including the following:
- Monopolization claims related to commercially insured hospital-only anesthesia services in Houston and Dallas (Section 2 of the Sherman Act).
- Substantially lessening competition through acquisitions in each of the Houston, Dallas and Austin markets (Section 7 of the Clayton Act and Section 5 of the FTC Act).
- Engaging in a course of conduct to obtain price increases that constitutes an unfair method of competition (Section 5 of the FTC Act).
- Entering into or maintaining agreements that used defendants’ market power to charge higher rates and allocate the market for commercially insured hospital-only anesthesiology services (Section 1 of the Sherman Act).
The Complaint seeks a permanent injunction against the defendants from engaging in the conduct described in the Complaint and any similar conduct, as well as any structural relief the court finds necessary to remedy the alleged violations.
The Complaint describes a concerted plan on the part of the defendants to buy nearly every large anesthesia practice in Texas. After executing on this strategy, the Complaint alleges, USAP has control over 1,000 doctors in total and, as a result, has been able to achieve higher rates from commercial payors for services rendered by those practices. In addition to acquiring practices, the Complaint alleges, the defendants entered into or maintained so-called “price-setting” arrangements with other, independent anesthesia groups that shared key hospitals in Houston and Dallas and engaged in market allocation with another large anesthesia services provider.
In total, the Complaint describes, as a result of this strategy, defendants control nearly 60% of hospital-only anesthesia costs statewide and approximately 43% of cases, and healthcare costs have increased in Texas by tens of millions of dollars annually. Finally, the Complaint alleges that defendants’ behavior has no valid pro-competitive justifications or efficiencies and defendants do little to create improvements to the services of the practices they acquire.
The Complaint raises many questions for private equity firms and other acquirors in healthcare and other industries. It also illustrates, however, that antitrust matters and merger analysis, in particular, are intensively fact-specific. Please contact McGuireWoods healthcare or antitrust counsel for more specifics on how this development may affect your particular business strategies.